Investment Guide: Here's why mutual fund investors should avoid 'home country bias'

On CNBC-TV18's special show Investment Guide, Rajeev Thakkar, CIO & Director at PPFAS Mutual Fund and Raunak Onkar, Head of Research at PPFAS Mutual Fund, advised investor on why they should avoid a 'home country bias'.

PPFAS Flexi Cap Fund has 8 percent of assets in Alphabet, 6 percent in Microsoft, 6 percent in Amazon and about 5 percent in Facebook.

Onkar said, "It is natural and very easy to understand the country we live in, we are aware of the unique opportunities that are available in our own country and we also know what are the risks that most businesses face in our own country. However, there are some reasons as to why not investing only in our country can also sometimes be beneficial."

"One of the most important reasons is that you get a chance to diversify from the local risks. For example you may have a election outcome which the market doesn't like or you may have a border tension with one of our neighbours etc. and that affects the domestic market but the companies which are outside, which are global companies, they do not have too much of an impact based on local Indian issues to that extent."

"Second reason is to understand the opportunity set - what kind of companies do we get to invest in the public listed space in India? If one needs to invest in emerging technology platform companies, we need to look westwards where companies are listed in their stock markets and which have become global giants with mammoth scale."

"So if you want to invest in such ideas, we do necessarily have to step out of our borders and get acquainted with those companies - how they operate, what is the kind of scale and what is the kind of longevity. So it also allows us to diversify some of the risk and at the same time reduce volatility in the portfolio", he said.

Thakkar said, "If the investing theme is to invest aboard because those markets have done well in the last 6 months or 1 year, then that is a completely flawed way of looking at things. However, if one is looking at the points of diversification of risk and having a larger opportunity set, then one must look outside of India. So if you are investing with a strategic allocation thinking that this will be part of your portfolio over the next 5-10 years then it makes sense."